The motto for the state of New Jersey is “liberty and prosperity,” but according to a group of Airbnb operators, a Jersey City ordinance passed to regulate short-term rentals gave them neither. In the case of Nekrilov v. City of Jersey City, a judge for the U.S. District Court for the District of New Jersey considered a challenge brought by several property owners and leasees against Jersey City’s ordinance regulating the operation of short-term rentals within the city.

Plaintiffs brought suit after Jersey City passed two ordinances regulating short-term rentals; one in 2015 legalizing short-term rentals with some restrictions, and one in 2019, significantly regulating short-term rentals within the city. The 2019 ordinance, Ordinance 19-077, was very restrictive. This ordinance restricted short-term rentals in non-owner-occupied dwellings to a maximum of 60 nights per year, and only allowed property owners, as opposed to leasees, to rent the property out to others on a short-term basis.

Plaintiffs had all made significant investments in rental properties in Jersey City before Ordinance 19-077 was passed, and challenged it on several grounds, including that the city’s ordinance was regulatory taking. The Court wrestled with the issue under the Penn Central factors and concluded that the City’s ordinance was not a regulatory taking because, although it did deprive the Plaintiffs of some rental profit, the detrimental impact on the economic value of the property itself was speculative.

Additionally, the Court found that Plaintiffs were not entitled to a favorable regulatory environment in which to operate their short-term rentals in perpetuity, and they should expect that laws can and will change depending on several factors. For these reasons, among others, the Court granted the City’s motion to dismiss the case and denied the Plaintiffs’ motion for a preliminary injunction and temporary restraining order.

Short-term rentals will likely continue to be a hot-button issue in Michigan, as it is across the country, in the years to come for both real estate investors and municipalities that are grappling with how to best regulate this area. For example, Ann Arbor recently passed an ordinance that went into effect on March 1, 2021. Ann Arbor City Code Chapter 97 created a licensing process for rentals that are leased for less than 30 days and prohibits short-term rental activity in certain residential areas.

Property owners should contact an attorney to review the zoning and regulatory landscape surrounding short-term rentals when evaluating a potential investment property in any municipality. An attorney can also be helpful with reviewing any bylaws or covenants, conditions, and restrictions that would come with the property. Municipalities can also benefit from an experienced attorney reviewing possible options for regulations of such properties within its city limits. Contact Fausone & Grysko, PLC today and let us ensure that your short-term rental does not become a long-term problem for your investment portfolio or municipality. Contact us online or call our office at (248) 380-0000.